Oil diplomacy - the new dimension
The Caspian region has turned out to be an area of international challenge and competition
Ahson Saeed HASAN

According to an uncontested hypothesis, the oil and gas resources in the Caspian Sea are so rich that in the future it could turn into one of the largest petroleum centres in the world and could well compete with the Persian Gulf. Reports and announcements vis-a-vis the existence of oil and gas in the region and the landlocked status of the regional states have drawn the attention of both regional and global powers. The prospect of economic gains has triggered off intense rivalries amongst the candidates for pipeline routes. All and sundry are aware that whichever country emerges as the outlet of regional energy will be the ultimate winner. Hence the issue of the pipeline route has assumed strategic dimensions in relation to the question of energy.

During the last decade or so the Caspian region has turned out to be an area of international challenge and competition. Serving as a bridge linking northern Europe to the Indian Ocean and Europe to the Far East, the Caspian is surrounded by countries that draw upon the regional wealth and have rich historical and civilizational backgrounds.

The region of the Caucasus to the west of the Caspian is also strategically placed. It consists of three small states, all having strategic characteristics and shared borders with regional powers - Russia, Iran and Turkey.

Much has been said about the oil and natural gas riches in Central Asia. Most of these resources are physically located in the Caspian Sea basin. Although the hydrocarbon reserves are estimated to be around 200 billion barrels, they are nowhere near the size of the known reserves in the Arabian Peninsula and the Persian Gulf. Yet it is widely assessed that the Caspian Sea basin hydrocarbons could be the single biggest addition to the world's resources. Even with significant new discoveries in its basin, the Caspian Sea is unlikely to emerge as an alternative to the current global energy dependence on the Persian Gulf, and the additional resources are likely to provide a greater flexibility to the powers that have historically managed to manipulate and play around with the international energy market.

Although initially the declarations regarding oil reserves in the Caspian were part of the great political circus, however, with the progress of time and thorough research, the very fact that these deposits do actually exist entails the sensitive question of their transfer to consumer markets. Since the region is landlocked, the issue of energy transfer will definitely involve the construction of onshore pipelines. Hence the competition amongst various states.

The question of oil pipeline control has gained prominence due to the fact that the country that eventually turns out to be the outlet for energy would acquire significant privileges. Therefore, apart from the economic considerations, political parameters have also been injected into the picture, with the Western countries taking a keen interest in the developments pertaining to the region.

The Pipeline diplomacy as it is called, has assumed new dimensions and political rivalry between Russia, United States, and Iran on the determination of the final pipeline route has started.

According to many analysts, Iran can be considered as a natural oil and gas market of the Caspian region. Iran, a major oil producer itself, has oil fields which are situated down south near the Persian Gulf and are at a distance of approximately one thousand kilometres from northern regions like Tehran, Tabriz, Mashad and so on, which happen to be major consumers of energy. These areas are geographically closer to the Caspian oil and gas fields than to the south.

Iran possesses four oil refineries in the north of the country which process about 1.3 billion barrels of oil pumped from the southern half, has a huge consumption of oil in these regions, which adds up with the economical aspect of using the oil and gas reserves of the Caspian region. Prima facie, it seems to be a strong candidate to justify the option of purchasing oil and gas from the north and exporting a commensurate amount from the south in the context of swap arrangements . Given such dynamics, Iran can possibly turn out to be the main consumer country in the Caspian region.

Contrary to many Western reports, the pipeline route through Iran is probably the most economically viable option for the export of oil and gas from the region. Due to its proximity to the Caspian oilfields, it will be easier to transfer considerable amounts of energy in a relatively lesser amount of time.

Since the required paraphernalia already is in place, the oil and gas transfer through Iran would be much cheaper. In case the Iran option is exercised, the cost of each barrel of oil will work out to about 60 cents. If other routes are used, the same amount of oil transfer will cost between $ 5 to $ 8.

In addition to the economic factor, the pipeline running through Iran to link the Caspian Sea to the Persian Gulf will be the shortest, safest and most economical, facilitating transfer of oil to the global markets, especially those in Japan and the Far East where oil consumption is on the rise.

Principally due to the United States and the West's insistence on the pursuance of a policy of containment with respect to Iran, despite the advantages provided by the exercise of the Iran option, the issue has been effectively pushed in to the background. However, notwithstanding all the opposition, many who care to think hold that Iran still provides the best and most attractive alternative route ..

Early last year, Morning Starr, former US Assistant Secretary of State, is reported to have refrained from ruling out the possibility of future pipeline construction through Iranian territory. In July 1999, Kazakhstan President Nazarbayev stated that Iran would provide the main route for the export of Kazakh energy resources.

Washington's rejection of the Iran alternative stands in sharp contrast to the stated US intention of energy route diversification and on the face of it, is aimed at further isolating Iran. Any change in the US approach would inevitably divert the general pipeline policy in the region towards Iran as the most logical solution.

With this in view, Russia and Turkey have expressed apprehensions over the prospects of US-Iran rapprochement vis-a-vis the effects on the pipeline policy. They fear that the change in US perception of Iran will spell doom for them and it will prompt Iran to tilt economically towards the West - the new circumstances can bring about Iran's reconsideration of its technological and military suppliers. In such a scenario, Russia not only runs the risk of losing multi-million dollar contracts, but it also dreads being driven out of its traditional sphere of influence. While Iran enters the Western zone of interests, it is possible that this country might activate its national-religious policy in the former Soviet territory to the detriment of Russian interests.

Turkey, the most allied ally of the US, knows well the position of oil companies regarding the Iran route. In case the US softens its stance with Tehran, the pressure exerted by the oil companies to set aside the Baku-Geyhan route in favour of the Iran alternative will increase manifold. Also, an improved relationship with the West, especially the US with Iran, will undermine Turkey's influential regional position and will be nothing but bad news for that country.

Given the pros and cons and the feasibility of Iran's geo-strategic and political position, it appears that the Iran option happens to be the most advantageous one. Though an Iran-US detente still seems to be a far-fetched idea, yet the positive reaction of Washington towards the results of the recent parliamentary elections in Iran and the expression of desire by the US media and intelligentsia to speak to Tehran are indicators that the time is not far away when the two countries will come closer to each other, but on an equal footing.

At the moment, US pipeline diplomacy revolves around the East-West Energy Corridor, which effectively sets aside the routes of the north and the south and thus blocks Iran and Russia from playing effective roles in regional development. Many experts agree that the US pipeline policy provides a necessary justification for its military presence in the area. They see plenty of US investment along with military backing making its way into the region, much on the pattern of the Persian Gulf. Also, NATO will establish a military presence, especially near the oil field and transit points of the Caspian, a move that will wield considerable strategic significance in the region. In this case, the engagement of regional countries, particularly in the southern Caucasus, in prospective security arrangements would be actively pursued by the US and the West.

Long and short, as things stand today, it's too early to pass a final judgment on preferred pipeline routes, more so because there are doubts regarding the exact amount of energy reserves in the region and costs involved in oil and gas extraction. Hence, the pipeline policy, despite being political in nature, will have to emerge in accordance with the region's economic realities.

The Nation, March 8, 2000